Tips for young investors
Learning by making investments
The portfolio of young investors not only allows them to make money but also serves as an educational tool. Investors can become a knowledgeable investor by learning while doing.
Invest in savings
Young investors should focus their strategies for making enough savings to ensure rich retirement. Although it may sound like a simple advice, it should be emphasized and repeated. Most of the time, investors tend to procrastinate about investment in savings; however they should not ignore the savings from the beginning in order to reap the benefits at the end.
Get rid of any pending debt
Young investors should get rid of any pending loan amount as soon as possible by paying off credit card bills and other high interest loans. Investors can get rid of high interest charges that are incurred by paying them off. The average annual return from stocks is usually 10.7% and therefore it is impractical to expect the 20%+ returns as experienced by the expert investors in during last couple of years. Investors should not commence an investing commitment till the debt is cleared.
Savings are not investing
Young investors should not confuse savings with investing. For example, one should make savings for house, car, education or other, however one should avoid invest the savings in stocks and stock mutual funds. It is especially helpful in cases where one is planning to make a large purchase in coming 4 to 5 years. Any investment that is less than five years does not provide sufficient time for recovering from a significant drop in the market.
There are cases of bear market in the stock markets that are marked by sustained down market. When investors make investment for short time periods, a “correction” in the bear market may rob you off with your money at time when you need your money. If investors would like to make investments for a short-term objective, investors need to invest in money market fund, certificate of deposit, or short-term bond fund.
Taking Advantage of retirement plan
There are retirement plans where employee is required to make contributions. These plans allow the investor to invest his/her money and provide great opportunity for accumulating large amount of money. The money contributed by employee is tax-deductible and grow gradually without being taxed. In some cases, there are some companies that will match employee’s contributions and provide retirement plan as huge wealth building tool.
Young investors should select an automatic investment plan as it enables the investors to pay for the investments before beginning to spend or pay other bills. It also inculcates discipline in the investor. It assists in avoiding the pitfalls of market timings. It also assists in making smart decisions as investors purchase more shares at low prices and fewer shares at high prices.